Liberty Formula One-C

Liberty Media Corp is assigned a 3-star quantitative star rating, indicating our belief that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 5% discount to our quantitative fair value estimate of $96.82 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's balance sheet increases our valuation estimate. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. For example, the firm's EBITDA/interest coverage ratio of 3.9 lies in the bottom 30% globally. Although the firm's ability to cover interest payments with EBITDA is limited, shares could sharply rebound if economic circumstances change or recent investments reduce fears of default. We believe this is a sign that shares could be cheap.

Conversely, the firm's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 25.6, for example, lies in the top 20% compared with peers globally. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

The narrow moat rating for this company indicates investors can expect it to generate 10 years or more of excess returns on capital due to its respectable competitive advantages. Its moat is bolstered by its strong financial health, which indicates low near-term bankruptcy risk.